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Claiming Business Asset Disposal Relief

Client already has 10% shares with full rights - they want to transfer more for full relief

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My client has 10% shares with full rights so already qualifies for B A D Relief. The company is being disposed of and the other share holder wants to transfer more shares from him to his partner so that they can both take advantage of the £1m limits. I see that 5% must have been held for 2 years, which is the case here, but does anyone know if HMRC would enquire on Due Dilligence if share are transferred within a couple of months of sale completion ?

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By David Ex
27th May 2021 12:46

robin-AT-pie-uk.com wrote:

does anyone know if HMRC would enquire on Due Dilligence if share are transferred within a couple of months of sale completion ?

Not sure what you mean. Whether HMRC enquire or not is surely irrelevant. Either the facts support the availability of the relief or they don't.

Have I misunderstood your point?

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Replying to David Ex:
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By [email protected]
27th May 2021 13:00

Thanks David, yes the facts support the relief currently as the shareholder has held more than 5% for more than two years. The point of transferring more shares before sale is so that this individual (who is also the other shareholders life partner) will receive more from the sale and potentially be able to claim the relief up to the life time limit, thereby also reducing the other shareholders CGT not covered by the relief. The concern is that HMRC will not entertain the position if shares are transferred shortly before the sale of the business. I can't find anything to suggest it would be an issue. There is a solicitor involved who has suggested the risk !

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Replying to [email protected]:
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By David Ex
27th May 2021 13:19

robin-AT-pie-uk.com wrote:

The point of transferring more shares before sale is so that this individual (who is also the other shareholders life partner) will receive more from the sale and potentially be able to claim the relief up to the life time limit, thereby also reducing the other shareholders CGT not covered by the relief.

When you say “life partner”, is that person entitled to the benefit of the inter-spouse/civil partner CGT exemption?

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Replying to David Ex:
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By [email protected]
27th May 2021 13:22

Yes she would be, the intention would be to transfer at nil value

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Replying to [email protected]:
Psycho
By Wilson Philips
27th May 2021 13:31

Even if the exmeption were not available if BADR is available then the company must, by definition, be a trading company and so gift holdver relief would presumably be available.

Pre-sale transfer of shares is common tax planning. Depending on what happens to the proceeds, there is always the possibility that HMRC could attempt to apply Ramsay but I have yet to see this applied in practice.

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Replying to Wilson Philips:
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By Tax Dragon
27th May 2021 18:08

Wilson Philips wrote:

Even if the exmeption were not available if BADR is available then the company must, by definition, be a trading company and so gift holdver relief would presumably be available.

HOR combined with gift and gift back might not need Ramsay.

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By The Dullard
27th May 2021 15:00

Why not:
1) transfer the offending shares,
2) pay a small dividend in the new proportions to show it's not a sham, and then
3) sell the company.

Real transactions have real consequences, hence (2).

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Replying to The Dullard:
Psycho
By Wilson Philips
27th May 2021 16:11

It seems that the client has only 10% of the share capital, so may not be in a position to influence the payment of dividends. Which leads to a further, non-tax, question:

Do the Articles/shareholder agreement permit such a transfer?

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Replying to Wilson Philips:
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By [email protected]
27th May 2021 16:26

Yes Articles are fine and the company only has 2 shareholders who are common law man and wife so no problems with authorising the issue of interim dividends.

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By Matrix
27th May 2021 17:25

Have you addressed the ERS implications?

(If there are already lawyers involved then you could ask for a tax lawyer to have a (second) look given the amounts involved.)

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Replying to Matrix:
Psycho
By Wilson Philips
27th May 2021 17:24

It's a point worth making, to ensure that all bases are covered, but I wouldn't imagine there to be any in this case.

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Replying to Matrix:
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By [email protected]
28th May 2021 10:19

Thanks but I think that the ERS implication is not going to be relevant here as the shares are transferred from person to person in a personal relationship, but a good one to box tick as I had not reviewed it before you mentioned it.

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By Tax Dragon
28th May 2021 14:38

How far advanced is the sale?

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Replying to Tax Dragon:
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By [email protected]
28th May 2021 14:46

The are going through due diligence on the numbers, no heads of terms or confirmed offer has yet been made.

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